Cities Have Long Been Skeptical of Economic Development Spending

To the long list of policymakers who have debated the wisdom and efficacy of cities and states using grants and tax breaks to attract companies, add Albert Weigel. Mr. Weigel was secretary of the South Bend, Ind., Chamber of Commerce in 1916. He wrote this in the summary of a survey his organization conducted:

“Cities that have good natural advantages to offer do not need to offer inducements, but cities without the natural advantages must, of necessity, offer other inducements of a financial nature. This organization believes that, generally speaking, for a factory to require a bonus is a confession of weakness of the enterprise.”

Mr. Weigel’s comments were provided by Chris Mead, who is writing a history of Chambers of Commerce that was detailed in a front page Wall Street Journal feature last week. As the article notes, Mr. Mead does his writing and research for 90 minutes each morning before taking on his day job as a senior vice president of the American Chamber of Commerce Executives. The comments from folks like Mr. Weigel are a telling reminder of the old adage about the more things change, the more they stay the same. From controversial policies that have workers pay taxes to their boss to economic incentive deals gone awry the same elements remain part of the modern economic debate.

Another concept that comes up in Mr. Mead’s research is clustering – the term today’s policy wonks apply to programs that attempt to cultivate a city’s specialty in a particular industry instead of trying to cherry pick other cities’ industries. The Brookings Institution’s Metropolitan Policy Program has been a big proponent of such policies. Among its many policy recommendations: Develop and use data and rigorous analysis to identify industry clusters, target policy, and track performance. That sounds like a less-colorful version of Colvin Brown, who wrote in a March 1927 edition of Nation’s Business about the practice of doling out economic development incentives as a “circus barker method” that would be replaced “by continuous, informed, honest, and scientific appraisal of a community’s resources.”

To be sure, incentives sometimes work. The tool of tax abatements – along with the widespread lack of unionization and much lower wages – was a huge tool in helping the South build its industrial base. And plenty in the economy has changed over past decades. Mr. Mead notes that communities used to pay big incentives to get railroads. Now they want high tech companies and college-educated workers.

But it seems cities and states have always had a healthy skepticism of using tax dollars to lure industry from elsewhere. Art Rolnick, a senior fellow that the Humphrey School of Public Affairs and a longtime critic of economic development programs, has in the past told Congress it should pass federal laws to curb the practice. “As long as the national governments can allow it, you will continue to see a lot of bidding wars,” he said in a recent interview with the Journal.

From the Oct. 1913 issue of Town Development: “…though there is at the present time a loud outcry against bonus-giving, there is hardly a commercial organization in the United States that does not stand ready to give a bonus in some form to worth-while industries.”

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